Assume that Fair Value of all noncash assets are 25% greater than book value Sel

Question

Assume that Fair Value of all noncash assets are 25% greater than book value

Select an accounting method (either cost or equity) and explain why you selected this method

Perform the required journal entries

Assume that Big Company decides to acquire 100% of Little Company for $200,000. Prepare the consolidated balance sheet and any supporting worksheets. Big Company Balance Sheet Assets, Liabilities & Equities Book Value Cash $500,000 AR $10,000 Inventory $50,000 Land $40,000 PP&E $400,000 Accumulated Depreciation -$150,000 Patent $0     Total Assets $850,000 AP $110,000 Common Stock $395,000 Additional Paid In Capital $300,000 Retained Earnings $45,000     Total Liabilities & Equity $850,000 Little Company Balance Sheet Assets, Liabilities & Equities Book Value Cash $35,000 AR $10,000 Inventory $65,000 Land $40,000 PP&E $40,000 Accumulated Depreciation -$5,000 Patent $0     Total Assets $185,000 AP $25,000 Common Stock $25,000 Additional Paid In Capital $35,000 Retained Earnings $100,000     Total Liabilities & Equity $185,000

Assume that Fair Value of all noncash assets are 25% greater than book value

Select an accounting method (either cost or equity) and explain why you selected this method

Perform the required journal entries

Journal Entry for Acquisition

Explanation / Answer

Big Company JOURNAL Date Account Tiltles and Explanation Debit ($) Credit ($) Cash a/c …………………..Dr           35,000 AR…………………..Dr           10,000 Inventory (125%)…………………..Dr           81,250 Land (125%)…………………..Dr           50,000 PP&E (125%)…………………..Dr           50,000 Goodwill a/c …………………Dr             3,750              To Accumulated Depreciation             5,000                 To AP           25,000             To Bank       2,00,000 (Being acquisition of little company) Purchase consideration       2,00,000 Calculation of net assets of little company Cash 35,000 AR 10,000 Inventory (125%) 81,250 Land (125%) 50,000 PP&E (125%) 50,000 Accumulated Depreciation -5,000 Patent 0     Total Assets 2,21,250 AP 25,000     Total Liabilities & Equity 25,000 Net assets 1,96,250 Goodwill (200,000-196,250) 3,750

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